Why Can't You Buy Anything Anymore? Well It's not all the Virus' Fault.

so the holidays are behind us and if you were left disappointed by what you found under the christmas tree it might be because you weren't in the spirit of things or it might have been because santa couldn't get any stock of anything the good little consumers of the world might have started to notice an increasingly common trend where more and more products sell out the day they are released or are never available to any ordinary consumers at all everything from playstations switches xboxes and graphics cards to lego sets handbags watches and even toilet paper it seems more and more like we are living in a world that is out of stock but why stock shortages happen from time to time that's just general supply chain management but why has this become such a consistent issue all of these products are made by businesses with a profit motive and those profits don't get made unless products get sold so what gives now i know you might be thinking uh it's the virus of course and certainly this has thrown a spanner into the works of global supply chains but it's not the whole story limited supply is one thing but if traditional economics is to be believed businesses don't let themselves run out of stock instead they just raise prices to match demand and maximize their profits what's more is that the chronovirus is not exactly new news to companies if they were caught out in early 2020 then fair enough but almost a year later you would think the corporate executives responsible for multi-billion dollar product launchers could account for this new global paradigm right but they haven't and you might ask why well to understand this we as always need to look at a few key things how have global supply chains been affected beyond just blaming everything uncovered are the companies involved actually making poor business decisions and why aren't these products just doing what supply and demand would tell them to do an increase in price this video is brought to you by the company that i trust to manage my own personal investments acorns if your goal in 2021 is to build wealth acorns can help thanks to the magic of fractional share ownership your rounded up spare change gives you instant exposure to over 7 000 stocks and bonds speaking of financial assets the acorns app provides you with pre-built portfolios making it so that you don't have to worry about picking the right stocks and bonds that's because you choose your risk profile for instance say you are young and able to take more risk you can choose an aggressive allocation comprised solely of equities or if you're older consider an all-bond conservative portfolio or maybe a blend of something in between whatever your flavor is acorns has you covered stay tuned until the end to learn more about why i trust acorns to manage my own retirement and feel free to sign up now at acorns.com ee when you sign up you'll not only be supporting your favorite australian economist but also receiving a five dollar investment into your future courtesy of your mates at acorns again that's acorns.com ee the link is on the screen now and in the video description below now of course it's not the whole story but it would be foolish to assume that the fallout of the chronovirus has not had a major impact on the availability of products but it might not be in the ways that you would imagine yes these days we are extremely reliant on global supply chains and yes these systems have become far more complicated and difficult to manage with various restrictions popping up and being eased every week in very unpredictable ways what's more is that most of the products that are experiencing these shortages are very complex and draw components from a vast array of suppliers in an equally vast array of countries even if one nation closes down its factories or restricts shipping or does anything to halt supply that means new products can't be manufactured now we can actually graph out the chance of a final product not being made with a really simple function the chance of supply being halted is equal to the inverse of the chance of the component suppliers being shut down to the power of how many suppliers there are even if we assume that the chance of a factory getting shut down in a given month is extremely low let's say one percent then this still causes issues for simple products it's not really a problem but something like an iphone draws materials and components from 43 countries so using this little model there is a 35 chance that this supply chain will be shut down in any given month if we look at it like this it's honestly a miracle that manufacturing has managed to stay as consistent as it has of course there are contingencies in place and most modern supply chains have supply buffers built into them but with the world like it is now the chance of a factory needing to be shut down at some point in this process is incredibly high much more than we allowed for in our simple little model here now breathe a sigh of relief because the maths is over and so too is directing all the blame at supply chains because of course there was the other side of this whole deal which was demand one thing that has not been talked about a lot in recent months is that household incomes have not really decreased this might come as a surprise to a lot of people who have been following the news of record job losses and people hanging on by a thread until the next stimulus check comes through but total employee compensation has only fallen by 0.5 percent now this statistic is for the us but it's a similar story for a lot of countries in australia for example total household compensation has actually gone up and why well it all has to do with the types of jobs that were lost they were mostly customer-facing low-income roles whereas traditional white-collar workers have more or less sailed through unscathed and top executives are being handsomely rewarded for guiding their companies through times of economic turbulence if we take an extreme example like elon musk's theoretical 55 billion performance bonus then more than one million average americans could lose their jobs entirely without total household incomes being impacted and when it's remembered that the people that are losing their jobs tend to be on the lower end of the pay scale then this one pay packet really does skew this statistic but the thing is all the products that we have been looking at so far are indeed luxuries two thousand dollar graphics cards tend to go in five thousand dollar computers and that's just something that would not even be considered by the types of people that are unfortunately been displaced from work regardless of the global situation of course things like toilet paper are just plain essentials but we will get to that later video game consoles are a bit hit and miss certainly they are affordable for average workers but they tend to cater to younger demographics with fewer financial responsibilities and maybe more of a propensity to put that stimulus check towards something a little bit irresponsible this segues us nicely onto the second factor of demand the various government stimulus efforts from around the world something like a 1200 check could be a huge relief for a struggling family but to a lot of average households with no children and very few overheads it's just some extra cash that can be thrown towards buying a new toy there have also been less obvious boost to demand beyond just giving people money here in australia for example in an attempt to get businesses to spend more money the government introduced an instant asset write-off deduction normally when a business buys an asset like a car or a machine or a computer it has to set up a depreciation schedule so let's say an office spends ten thousand dollars on shares that they predict will last five years then they would be allowed to deduct two thousand dollars per year in depreciation expenses that the business will then not need to pay tax on the government's new scheme allowed them to deduct the entire purchase price instantly which meant any planned purchasers were going to get done this financial year it may not sound like a big contributor but i know i got my new editing pc this year for exactly that reason similar systems around the world have all had similar effects increasing demand if you increase demand and pair that with a reduction in supply you get a very predictable outcome increased prices the market finds a new equilibrium at a higher price and only those that value the goods enough to make a transaction at that higher price get the goods it's unfortunate for the people who are no longer willing or able to spend 800 on a playstation or three thousand dollars on a graphics card or forty thousand dollars on a rolex but that's just economics it's not necessarily less or more sad than someone no longer been willing or able to spend four hundred thousand dollars on a ferrari all other things been equal businesses maximize their profit by selling all of their available stock at the highest price point they can get but the thing is they haven't been in fact a lot of the marketing involved in these new products is how they are twice as good as their predecessors at a fraction of the cost which just adds to the confusion why would companies offer something better and cheaper when their customers are willing to pay at least what the old price was why are they forgoing to avoid confusion from here on out we are just going to look at two specific products at opposite ends of the needs versus wants spectrum a roll of toilet paper and the new rtx 3080 from nvidia which for the people that don't know is an expensive computer chip that lets you play pc games really well so there are two external forces making the market for these two items behave in ways that we wouldn't normally expect sticky pricing and price gouging laws you see anytime we draw market diagrams we make a lot of assumptions about the world to make it easy to work with but in reality these lines are a lot fuzzier for a host of reasons so sticky pricing is the biggest factor at play here when nvidia announced their new graphics cards they couldn't be totally sure of the demand that would exist for them remember the world was in a crazy place during the months leading up to the release of this product job losses could have got worse the availability of complementary goods could have been a problem as in people aren't going to buy that fancy new graphics card if they can't buy the other components that go into their shiny new gaming pc and of course there were question marks around competitor products from amd as well with a benefit of hindsight nvidia could have announced prices 50 higher than what they did and probably still sold out but if household demand didn't remain as strong as it has or amd released a competitor card that was significantly better then they would be stuck with an overpriced pile of computer chips no one wants to buy now you might ask nowadays they know that that isn't going to be a problem why don't they just raise prices now well now the issue is that the company has already spent tens of millions of dollars on advertising and marketing this new product at this price point announcing a new price point now would involve going back and producing new marketing materials and negotiating new contracts with their development partners who were also planning on selling products at this given price this would also not go over well with the general public who were promised a new product at an impressive price point in fact most of the hype surrounding this particular launch was about how cheap these products were compared to the older lineup that they were replacing if you are getting similar price to performance after a market-guided price increase then most of the hype would fade away pretty quickly while also making consumers cranky at you for profiteering off shortages so yeah once prices are announced they are hard to change especially for big ticket items they stick in place this leads us on to anti-price gouging laws which are technically part of what makes prices sticky but does deserve to mention separately in most advanced economies around the world there are laws in place to prevent retailers from raising the price of essentials during emergency situations nobody wants to see a gas station charging a hundred dollars for bottled water in the aftermath of a hurricane so rules are put in place to prevent this seems fair enough right well yeah sort of most economists agree that anti-price gouging laws are indeed necessary but they are kind of a form of necessary evil you see what this effectively makes is a price ceiling above which prices are forbidden to increase the spike in demand that comes from these events means that people desperately try and buy up as much as they possibly can to make sure their family is accommodated for but with no price measures in place this causes hoarding as people buy up everything they possibly can sometimes out of fear sometimes out of greed and sometimes both however if these laws weren't in place then something like toilet paper would naturally rise in price to a level of let's say 50 a packet which might give these would-be hoarders pause before they load 20 packets into their trolleys which means that there would be enough left for everybody even if it was at a higher price a potential solution to this problem that didn't involve raising prices was either to arbitrarily limit the number of products an individual could purchase or make the sale of one item the regular price but the sale of two or more an extremely high price unfortunately both of these strategies clash with similar consumer protection laws in a lot of countries and states in the us and even in places where they are legal they don't actually solve the underlying issue now regular channel viewers may be able to see where this is going these regulations are effectively creating market failures where equilibrium cannot be achieved demand outpaces supply at this price level and products inevitably go out of stock this accelerates the problem because cunning individuals see this as an opportunity for profit scalpers will buy up the limited supply and sell the products back to regular consumers that missed out at inflated prices we have addressed this a few times on the channel before most notably in our video on black market economics but the same thing that holds true for totally illegal items that want to be sold at a fair price also holds true for legal items that want to be sold at any legal price so let us know what you think would you be happy to pay the market determined price if it meant stock was always available or would you boycott buying a new product if the price was increased far beyond what their press releases would have you believe it really is a very divisive issue with no perfect answer unfortunately the good news is that you can purchase the other type of stock easily with acorns thanks to features like smart deposit you can automatically move a percentage of your next paycheck into your savings investment and retirement accounts simply choose the amount that you want to set aside and just like that you're all set all you've got to do now is deposit your next paycheck by snapping a picture or setting up ach direct deposits acorns will take care of the rest on the topic of investing in your future i'd be remiss if i didn't mention one of acorn's newest features acorns early with acorns early you can set aside money for your children while also potentially being able to take advantage of special tax benefits not to mention savings on subscriptions like your disney plus account unlike a traditional 529 college savings plan which only lets you withdraw money for well college and acorns early account lets you withdraw funds for anything that benefits your child bottom line if you have children you should definitely look into acorns early and if you don't have kids well i'll take this opportunity to announce our newest sponsor tinder just kidding but seriously whether or not you have kids you should consider taking a look at acorns later with just a few taps you can create your very own investment retirement account which you can automate with recurring contributions learn more at acorns.com ee and see for yourself why over 8 million people have chosen acorns to manage their financial futures and again as a special gift to all economics explained viewers acorns will deposit five dollars into your portfolio when you sign up using the link shown on screen which is also in the video description below as always thanks for watching guys bye

Channel: Economics Explained

Views: 714,511

Rating: 4.8373103 out of 5

Keywords: stock shortages, global supply chain, nvidia rtx 3080, out of stock, the economics of stock shortages, price gouging, supply and demand, graphics card stock, next generation console stock, playstation 5, xbox, why is everything out of stock, imports, scalpers, reselling, resale, infotainment, educational, GPU, bitcoin mining, company profit, product pricing, edutainment, economics, economics explained

Id: HUYVN7KIYCE

Length: 15min 42sec (942 seconds)

Published: Thu Jan 07 2021

Reddit Comments

[u/sub_zero_immortal]

I don’t think that covid can be blamed for this.

This has been going on in other industries for a while, it’s just filtering through now and happening with GPU’s and other tech products.

Try getting the latest pair of retro Jordan’s on a drop at the Nike store.. whole site crashed, then your pair of retro V are sold out by the time you get to the cart. You start seeing them come up for 1500 a pair on eBay etc same day.

This is not the only thing that effected it obviously, there wasn’t and still isn’t enough 3080 even now. But it was a lot of factors, bots and scalpers being the main one that effected the supply chain once they hit retail outlets.